Pakistan International Airlines Corporation vs. Ople

Employment contract provisions that, read together, effectively render employment at the employer's pleasure and thereby circumvent the employee's statutory right to security of tenure are void and unenforceable, notwithstanding a choice-of-law clause designating foreign law and foreign courts, where the relationship bears substantial contacts with the Philippines.

Petitioner Pakistan International Airlines Corporation ("PIA") is a foreign corporation licensed to do business in the Philippines. Private respondents Ethelynne B. Farrales and Ma. M.C. Mamasig are Filipino citizens who were employed by PIA as flight attendants, with base station in Manila and flying assignments to the Middle East and Europe. The employment contracts were executed in Manila and performed at least partially in the Philippines. The dispute arose within the framework of the then-existing Labor Code provisions on security of tenure and the requirement of prior clearance from the Ministry of Labor and Employment before terminating employees with at least one year of service.

On December 2, 1978, petitioner Pakistan International Airlines Corporation ("PIA"), a foreign corporation licensed to do business in the Philippines, executed in Manila two separate contracts of employment — one with private respondent Ethelynne B. Farrales and the other with private respondent Ma. M.C. Mamasig. The contracts became effective on January 9, 1979. Paragraph 5 fixed the duration of employment at three years, extendible by mutual consent. Paragraph 6 reserved to PIA the right to terminate the agreement at any time by giving the employee one month's written notice or, in lieu thereof, by paying one month's salary. Paragraph 10 stipulated that the agreement would be construed and governed by the laws of Pakistan and that only the courts of Karachi, Pakistan would have jurisdiction over any matter arising from the agreement.

After completing training in Pakistan, Farrales and Mamasig began discharging their duties as flight attendants, with base station in Manila and flying assignments to different parts of the Middle East and Europe. On August 2, 1980, roughly one year and four months before the contracts were due to expire, PIA — through Mr. Oscar Benares, counsel for and official of the local branch — sent separate letters dated August 1, 1980 to both respondents advising them that their services would be terminated "effective 1 September 1980, conformably to clause 6 (b) of the employment agreement." PIA later claimed in its position paper before the Ministry of Labor and Employment that both respondents were habitual absentees and had been in the habit of bringing sizeable quantities of "personal effects" from abroad, prompting customs officials to discreetly warn PIA personnel at the Manila International Airport. PIA submitted no evidence beyond its position paper.

On September 9, 1980, private respondents jointly filed a complaint for illegal dismissal and non-payment of company benefits and bonuses. After several unsuccessful conciliation attempts, the hearing officer ordered the parties to submit position papers and supporting evidence. Regional Director Francisco L. Estrella, in his Order dated January 22, 1981, found that private respondents had attained regular employee status after rendering more than one year of continued service; that the three-year fixed-term stipulation was null and void for violating Labor Code provisions on regular and casual employment; and that the dismissal was illegal for having been carried out without the requisite prior clearance from the MOLE. He ordered reinstatement with full backwages or, alternatively, payment of salaries for the remainder of the contract period, plus a round-trip ticket to Mamasig and a one-month salary bonus to each respondent. On appeal, Deputy Minister Vicente Leogardo, Jr. affirmed in an Order dated August 12, 1982, except for the option allowing PIA to pay salaries in lieu of reinstatement.

• Jurisdiction: Petitioner contended that the Regional Director, MOLE, had no jurisdiction over the illegal dismissal complaint, arguing that jurisdiction was lodged in the Arbitration Branch of the National Labor Relations Commission ("NLRC").
• Due Process: Petitioner claimed that the Regional Director's order was null and void for having been issued in violation of petitioner's right to procedural due process, alleging that no hearing was conducted by the hearing officer.
• Contractual Autonomy: Petitioner invoked paragraphs 5 and 6 of the employment contract, arguing that its relationship with private respondents was governed by the contract provisions rather than by the general provisions of the Labor Code, and that a contract freely entered into should be respected as the law between the parties.
• Choice of Law and Venue: Petitioner relied on paragraph 10 of the contract, which designated the law of Pakistan as the applicable law and the courts of Karachi, Pakistan as the sole venue for dispute settlement, to preclude the application of Philippine labor laws and the jurisdiction of Philippine agencies and courts.

• Jurisdiction of the Regional Director: Whether the Regional Director, MOLE, had jurisdiction over the illegal dismissal complaint filed by private respondents.
• Procedural Due Process: Whether petitioner was denied procedural due process when the Regional Director issued his order without conducting a formal or oral hearing.
• Validity of Contractual Provisions vs. Labor Code: Whether paragraphs 5 and 6 of the employment contract — fixing a three-year term but allowing PIA to terminate at any time — could override the security of tenure provisions of the Labor Code.
• Enforceability of Choice-of-Law and Forum-Selection Clause: Whether paragraph 10 of the contract, designating Pakistan law and Karachi courts, could oust Philippine courts and administrative agencies of jurisdiction over the dispute.

• Jurisdiction of the Regional Director: Yes. At the time the complaint was filed and the orders were issued, the Regional Director had jurisdiction over termination cases pursuant to Article 278 of the Labor Code, Rule XIV, Book V of its Implementing Rules, and Policy Instruction No. 14.
• Procedural Due Process: No denial of due process occurred. Petitioner was ordered to submit a position paper and supporting evidence and opted to rely solely on its position paper; it also had the opportunity to appeal to the MOLE.
• Validity of Contractual Provisions vs. Labor Code: No. Paragraphs 5 and 6, read together, effectively neutralized the fixed-term provision and circumvented the employees' right to security of tenure under Articles 280 and 281 of the Labor Code, rendering those contractual stipulations void.
• Enforceability of Choice-of-Law and Forum-Selection Clause: No. The choice-of-law clause could not prevent the application of Philippine labor laws, the employer-employee relationship being heavily impressed with public interest; the forum-selection clause could not oust Philippine jurisdiction given the multiple substantive contacts with the Philippines.

• Jurisdiction of the Regional Director: Article 278(b) of the Labor Code, as it then existed, forbade termination of employees with at least one year of service without prior written authority from the Department of Labor and Employment. Rule XIV, Book V of the Implementing Rules explicitly authorized the Regional Director to order immediate reinstatement and payment of wages in cases of dismissal without prior clearance. Policy Instruction No. 14, issued April 23, 1976, confirmed that termination cases were placed under the original jurisdiction of the Regional Director. Both at the time the complaint was filed in September 1980 and at the time the assailed orders were issued in January 1981 and August 1982, the Regional Director possessed jurisdiction over termination cases.

• Procedural Due Process: Petitioner was ordered to submit not only its position paper but also supporting evidence; it chose to rely solely on its position paper, from which the Court assumed it had no evidence to sustain its assertions. Even without a formal or oral hearing, petitioner had ample opportunity to explain its side and was able to appeal to the MOLE. Additionally, under the then-applicable regulation, a dismissal without prior clearance was "conclusively presumed to be termination of employment without a cause" — a presumption of juris et de jure character that could not be overturned by any contrary proof. As held in Cebu Institute of Technology vs. Minister of Labor and Employment, the Regional Director did not even need to require submission of position papers given the conclusive nature of the presumption.

• Validity of Contractual Provisions vs. Labor Code: While a contract freely entered into should be respected as the law between the parties, the principle of party autonomy is not absolute. Article 1306 of the Civil Code permits parties to establish stipulations as they deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Labor and employment law is an area heavily impressed with public interest, and parties may not contract away applicable peremptory provisions. Reading paragraphs 5 and 6 together, the fixed three-year term in paragraph 5 was effectively neutralized by paragraph 6, which allowed PIA to terminate at any time and for any cause satisfactory to itself by giving one month's notice or paying one month's salary. The net effect rendered the employment basically at PIA's pleasure, preventing any security of tenure from accruing even during the limited three-year period, and thus circumventing Articles 280 and 281 of the Labor Code. Applying the doctrine in Brent School, Inc. vs. Zamora, the critical consideration is whether the period was designed to circumvent security of tenure; here, the combination of paragraphs 5 and 6 showed precisely such intent.

• Enforceability of Choice-of-Law and Forum-Selection Clause: The first clause of paragraph 10, designating Pakistan law, could not prevent the application of Philippine labor laws because the employer-employee relationship is heavily impressed with public interest and applicable Philippine laws cannot be rendered illusory by agreement upon some other governing law. The second clause, designating Karachi courts as the sole venue, could not oust Philippine jurisdiction given the multiple substantive contacts: the contract was executed and at least partially performed in the Philippines; private respondents are Philippine citizens; PIA is licensed to do business and resident in the Philippines; and private respondents were based in the Philippines between flights. Furthermore, PIA did not undertake to plead and prove the contents of Pakistan law on the matter, so it was presumed that Pakistani law was the same as Philippine law.

• Non-absoluteness of Party Autonomy in Contracts — The principle of party autonomy under Article 1306 of the Civil Code is not absolute; contracting parties may not stipulate terms contrary to law, morals, good customs, public order, or public policy. Provisions of applicable law, especially peremptory provisions dealing with matters heavily impressed with public interest such as labor and employment, are deemed written into the contract. Parties may not contract away applicable labor laws and regulations by simply agreeing among themselves.

• Circumvention Test for Fixed-Term Employment Contracts (Brent School Doctrine) — A contract providing for a fixed period of employment is not necessarily unlawful under Articles 280 and 281 of the Labor Code. The critical consideration is whether the period specified was designed to circumvent the security of tenure of regular employees. Where the circumstances show that periods were imposed to preclude acquisition of tenurial security, they should be struck down. Where no such intent to circumvent exists — e.g., where the employee insists upon a period, or where the nature of the engagement makes a definite termination date a sine qua non — a fixed-term agreement is valid. The test requires examining aspects of the agreement other than the mere specification of a fixed term, or evidence aliunde of intent to evade.

• Ineffectiveness of Choice-of-Law and Forum-Selection Clauses in Labor Contracts — A choice-of-law clause designating foreign law cannot prevent the application of Philippine labor laws to an employer-employee relationship substantially connected to the Philippines, because labor law is an area affected with public interest. A forum-selection clause designating foreign courts cannot oust Philippine courts and administrative agencies of jurisdiction where there are multiple substantive contacts with the Philippines, including execution and performance of the contract in the Philippines, Philippine citizenship of the employees, and the employer's licensure and residence in the Philippines.

• Presumption of Identity of Foreign and Domestic Law — Where a party invokes foreign law as governing a dispute but fails to plead and prove the contents of that foreign law, it is presumed that the applicable provisions of the foreign law are the same as the applicable provisions of Philippine law.

• "Parties may not contract away applicable provisions of law especially peremptory provisions dealing with matters heavily impressed with public interest. The law relating to labor and employment is clearly such an area and parties are not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting with each other." — This passage articulates the ratio decidendi for why contractual stipulations in employment contracts cannot override mandatory labor law protections, establishing the public-policy foundation for invalidating the choice-of-law clause.

• "where from the circumstances it is apparent that periods have been imposed to preclude acquisition of tenurial security by the employee, they should be struck down or disregarded as contrary to public policy, morals, etc." — Quoted from Brent School, Inc. vs. Zamora, this is the canonical formulation of the circumvention test for fixed-term employment contracts, frequently cited in subsequent jurisprudence on security of tenure.

• "paragraph 10 of the employment agreement cannot be given effect so as to oust Philippine agencies and courts of the jurisdiction vested upon them by Philippine law." — This sentence states the holding on the unenforceability of the forum-selection clause, grounded in the substantial contacts between the dispute and the Philippines.

• Brent School, Inc. vs. Ronaldo Zamora, et al., G.R. No. L-48494 (February 5, 1990) — Controlling authority on the validity of fixed-term employment contracts. The Court extensively examined Articles 280 and 281 of the Labor Code and held that fixed-term employment is not per se unlawful; the test is whether the period was imposed to circumvent security of tenure. Applied directly in this case to evaluate paragraphs 5 and 6 of the PIA employment contract.

• Cebu Institute of Technology vs. Minister of Labor and Employment, 113 SCRA 257 (1982) — Cited for the proposition that under Rule XIV, Section 2 of the Implementing Rules, termination without prior clearance is conclusively presumed to be without just cause — a presumption of juris et de jure character that cannot be overturned by contrary proof.

• Miciano vs. Brimo, 50 Phil. 867 (1924) — Cited for the presumption that when foreign law is not pleaded and proved, it is presumed to be the same as Philippine law.

• Henson vs. Intermediate Appellate Court, 148 SCRA 11 (1987) — Cited for the proposition that a contract is the law between the parties.

• Article 278(b), Labor Code — Prohibited termination of employees with at least one year of service without prior written authority from the Department of Labor and Employment. Applied to establish the Regional Director's jurisdiction over termination cases and the illegality of dismissal without prior clearance.

• Rule XIV, Book V, Rules and Regulations Implementing the Labor Code, Section 2 — Provided that dismissal without prior clearance is conclusively presumed to be without just cause and authorized the Regional Director to order immediate reinstatement and payment of wages. Applied to confirm the Regional Director's jurisdiction and the conclusive presumption against PIA.

• Article 280, Labor Code (Security of Tenure) — Provided that an employer shall not terminate a regular employee except for just cause or when authorized, and that an unjustly dismissed employee is entitled to reinstatement and backwages. Applied to determine that the contractual provisions circumvented the employees' security of tenure.

• Article 281, Labor Code (Regular and Casual Employment) — Provided that any employee who has rendered at least one year of service, whether continuous or broken, shall be considered a regular employee. Applied to establish that private respondents had attained regular employee status.

• Article 1306, Civil Code — Permitted contracting parties to establish stipulations as they deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Applied to hold that the principle of party autonomy is not absolute and cannot override peremptory labor law provisions.

• Policy Instruction No. 14 (April 23, 1976) — Issued by the Secretary of Labor, explicitly placing termination cases under the original jurisdiction of the Regional Director. Applied to confirm jurisdiction.

Fernan (C.J., Chairman), Gutierrez, Jr., Bidin, and Cortés, JJ., concurred.